The nation's central bank will have to further tighten monetary policy next year to combat escalating inflation and a widening interest-rate spread between Taiwan and the US, Goldman Sachs predicted.
"We could see the CBC [central bank] start to revert back to 25 basis points [0.25 percentage points] per meeting next year to bring rates back to a more `neutral' level, and provide more buffers to future inflationary shocks in the longer term," Goldman Sachs economist Enoch Fung said in a research note released on Oct 31.
But before this happens, the economist expects the central bank to implement a mild upward adjustment of 12.5 basis points next month, on concern over weakening domestic demand, despite low real interest rates after deducting inflation.
Since October last year, the monetary authority has raised rates five times. Its initial hike of 0.25 percentage points, was followed by four slower-paced increases of 0.125 percentage points.
"Inflation may surprise on the upside," Fung said, adding that Goldman Sachs believes inflation may be accelerating more rapidly than the central bank expects.
Given that the headline inflation (the officially announced inflation rate) has risen about 3 percent in the first three quarters of this year, mainly boosted by higher food prices because of typhoons, this is expected to start filtering into core inflation, Fung said.
Additionally, an increase in domestic fuel prices could provide a large shock to domestic demand and inflation, Fungt said.
Energy pricing
The government's measures to contain oil prices through 25 percent tax relief on fuel products, mean that fuel and energy providers like Chinese Petroleum Corp (CPC, 中油) may raise fuel prices if global oil prices remain high, he said. A US$1 per barrel rise in crude oil prices translates into a US$2 billion loss to CPC annually, he said.
The Directorate General for Budget, Accounting and Statistics said last week that it expects the consumer price index to hit 2.23 percent this year, and drop to 1.52 percent next year, on stabilizing food and oil prices.
Meanwhile, the US Federal Reserve may continue to boost interest rates until the middle of next year, increasing its Fed Funds Rate to nearly 5 percent, a level higher than market expectations, Fung said.
Faster pace
The nation's central bank would need to increase the pace of its rate rises -- even after the US hikes are finished -- to avoid enlarging the interest-rate differential between the two countries, which would put pressure on Taiwan's currency and balance of payments, the economist said.
Central bank Governor Perng Fai-nan (
Real interest rates are equivalent to interest rates minus inflation, or the CPI. Under negative real interest rates, people tend to invest more given the low cost of capital rather than saving money. This can boost assets prices and in turn trigger inflation.
Since the central bank has committed to bringing rates back to a neutral level, the current rediscount rate charged to commercial lenders, 2.125 percent, is far from the target level, Goldman Sachs said.
With a mild rate increase expected next month, the investment bank expects the nation's currency to remain weak in the near term, given a lack of catalysts and the wide gap in interest rates with the US.
Goldman Sachs meanwhile revised down its forecasts for the NT dollar to NT$33.5, NT$33.2, and NT$32.5 against the US dollar for the three, six and twelve-month horizon. This is weaker than its previous forecasts of NT$32.5, NT$31.5 and NT$31, respectively.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
Thousands of parents in Singapore are furious after a Cordlife Group Ltd (康盛人生集團), a major operator of cord blood banks in Asia, irreparably damaged their children’s samples through improper handling, with some now pursuing legal action. The ongoing case, one of the worst to hit the largely untested industry, has renewed concerns over companies marketing themselves to anxious parents with mostly unproven assurances. This has implications across the region, given Cordlife’s operations in Hong Kong, Macau, Indonesia, the Philippines and India. The parents paid for years to have their infants’ cord blood stored, with the understanding that the stem cells they contained